Implementation Regulations on Lebanese Banks Shares Issuing and Trading

/Text /Section 1 /No. 82 /Date 30-6/2016 535 Circular No. 82 to Banks We enclose a copy of the Basic Decision No. 7814 dated 11/5/2001 and its Implementation Regulations on the issuing and trading of Lebanese banks' shares, attached.

Beirut, 11 May 2001 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah Old No. 1910

536 Basic Decision No. 7814 Implementation Regulations on the Issuing and Trading of Lebanese Banks' Shares The Governor of the Central Bank of Lebanon, Pursuant to Law No. 308 dated 3/4/2001 (Issuing and trading of banks' shares, issuing debt securities, and real estate ownership by banks), particularly Article 13 thereof; After coordination with Medclear S.A.L.; and Based on the decision of the Central Council of the Central Bank of Lebanon taken in its meeting held on 9/5/2001; Decides as follows:

Article 1: The Implementation Regulations on the issuing and trading of Lebanese banks' shares, attached herewith, are hereby put into effect.

Article 2: The following regulatory texts issued by the Central Bank of Lebanon are repealed:

• Decision No. 6117 dated 8/3/1996, attached to Circular No. 1410 dated 8/3/1996.
• Decision No. 6219 dated 4/7/1996, attached to Circular No. 1448 dated 4/7/1996.
• Decision No. 6732 dated 18/9/1997, attached to Circular No. 1560 dated 18/9/1997.
• Decision No. 7225 dated 11/2/1999, attached to Circular No. 1702 dated 11/2/1999.

• For old numbering. Circular numbers are according to the attached.

537 Article 3: This Decision and its attached Regulations shall take effect immediately upon their issuance.

Article 4: This Decision and its attached Regulations shall be published in the Official Gazette. Beirut, 11 May 2001 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah

538 Implementation Regulations on the Issuing and Trading of Banks' Shares Article 1: These Regulations are issued in implementation of the provisions of Article 13 of Law No. 308 dated 3/4/2001 (Issuing and trading of banks' shares, issuing debt securities, and real estate ownership by banks).

Section One: Ordinary Shares Article 2: Each Lebanese bank is required to provide Medclear S.A.L. within a maximum deadline of 30/1/2002, at its full responsibility, the following:

• 1. Two shareholder registers of its capital and the number of shares they own across all categories, the first as of 6/4/2001 and the second as of 31/12/2001, organized on a magnetic disk or any other electronic means acceptable to the Central Bank of Lebanon, according to Form No. (1).
• 2. Documents proving the establishment of any rights, liens, or encumbrances (mortgage, seizure, usufruct...) on any of its shares.
• 3. Any amendments to either of the aforementioned registers under item (1) of this Article, from 6/4/2001 until the actual delivery date of these two registers according to Table No. (2) mentioned in Article 3 below.

Article 3: Upon any change in the ownership of shares of any Lebanese bank or upon establishing/arranging any rights, liens, or encumbrances thereon, it is required:

• 1. To notify Medclear S.A.L. via the concerned bank, at its full responsibility, with the information detailed below, organized on a magnetic disk or any other electronic means acceptable to the Central Bank of Lebanon according to Form No. (2), within 48 hours following the completion of documents listed in Article 4 of these Regulations:
• a. Any transfer of unlisted shares that does not result in the transferee directly or indirectly owning more than 5% of the bank's total shares or voting rights attached to these shares, whichever is greater.
• b. Names of heirs or legatees receiving the shares by inheritance or bequest, the number of shares transferred to them, and their distribution among themselves.
• 2. To provide Medclear S.A.L., from the concerned parties, all documents proving the establishment of any rights, liens, or encumbrances on the shares.

Article 4: The concerned bank verifies, at its full responsibility, that all legal and regulatory conditions (shareholders' right of first refusal, board of directors' approval...) for the transfers mentioned in item (1) of Article 3 are met, and that the information notified to Medclear S.A.L. is accurate after the concerned parties provide it with the following documents, which must be retained:

• A copy of the share transfer deed, dated and signed by both the transferor and transferee, including their full addresses (P.O. Box - telephone - fax/telex - email) and all transfer conditions, particularly the price.
• A copy of the ID (or passport) and family status extract for the transferee if a natural person.
• A copy of the commercial registration certificate from the competent authority for the transferee if a company, along with a register of its shareholders and their ownership percentages.
• If applicable, an authenticated copy of the inheritance inventory order or the will deed.

1. For companies and mutual investment funds as transferees, an authenticated copy of the partnership agreement or articles of association must be provided, containing a clause stating that all shares of these companies or units of these funds are fully and continuously owned, directly or indirectly, by natural persons or companies whose shares are also named.
2. Added to this item by Article 2 of Interim Decision No. 12194 dated 29/2/2016 (Interim Circular No. 411), and its Article 9 states: "Banks and financial institutions in non-compliance with Articles One, Two, and Three of this Decision are granted a maximum deadline of two years from its issuance to regularize their status."

539 Article 5: In cases requiring prior approval from the Central Bank of Lebanon, the request is submitted to the Governor's Secretariat by the concerned bank in four copies, two of which are originals, within 48 hours from completing the following attached documents: First: The share transfer deed, dated and signed by both parties, containing all transfer conditions (especially the price) and an explicit clause suspending its enforcement until Central Bank approval, authenticated by a notary public or the concerned bank regarding the validity of signatures and signatory capacity.

1. Second: If the transferor or transferee is a company or mutual investment fund:

• 1. An authenticated copy of the partnership agreement, articles of association, or fund regulations, or any other document specifying the authorized signatory for the share transfer deed.
• 2. If applicable, a copy of each resolution by the competent body in the company or investment fund approving the transfer and authorizing the signing of the transfer deed. Third: If the subscriber or transferee is a natural person:
• 1. A criminal record extract not older than three months.
• 2. A copy of his ID (or passport) and family status extract.
• 3. An information statement, not older than three months, dated and signed by him, detailing his social and financial status, including details of his liabilities (assets and obligations), estimated values of his participations, shares, and real estate properties, organized according to Form No. (3) attached.

540 Fourth: If the subscriber or transferee is a company:

• 1. For all companies:
• a. Company registration certificate with the competent authority.
• b. Financial statements for the last three years, or for the period since incorporation if incorporated less than three years ago, organized and signed according to standard practice.
• c. If applicable, a copy of each resolution by the competent body in the company approving the subscription or transfer and authorizing the signing of the transfer deed.
• d. A criminal record extract, not older than three months, for the Chairman of the Board or General Manager in capital companies, and for the Director or Authorized Partner in personal companies.
• e. An information statement, not older than three months, dated and signed by the authorized entity, detailing in detail the estimated value of their real estate investments, participations, and shares, organized according to Form No. (4) attached.
• 2. For capital companies, in addition to item (1) above:
• a. An authenticated copy of the articles of association containing a clause stating that all their shares are named.
• b. An authenticated copy of the minutes containing the election of current board members and Chairman.
• c. A register of shareholders indicating their number of shares in the company.
• 3. For limited liability companies and personal companies, in addition to item (1) above:
• a. An authenticated copy of the original partnership agreement.
• b. If applicable, an authenticated copy of the partners' meeting minutes appointing the Manager.
• c. A register of partners indicating their shares in the company.

541 Fifth: If the subscriber or transferee is a mutual investment fund:

• 1. Fund regulations containing a clause stating that all its units are named.
• 2. The document outlining investment strategies.
• 3. Financial statements, organized and signed according to standard practice, for the last three financial years or for the period following the fund's establishment if established less than three years ago.
• 4. The document proving the appointment of current custodian and fund manager.
• 5. If applicable, a copy of each resolution by the competent body approving subscription or transfer and authorizing the signing of the transfer deed.
• 6. A register of unit holders in the fund and the number of units each owns.
• 7. A summary of the fund prepared according to Appendix No. (7) attached.
• 8. An authenticated copy of a recent certificate issued by the regulatory authorities in the country of origin, confirming the fund's registration and continuous supervision there, if the fund is established abroad.

1. Established in accordance with Basic Decision No. 7074 dated 5/9/1998, in case the fund is established abroad.
2. Article 5 bis: First: Investment funds and companies subscribing or transferring shares mentioned in "Article 5" of these Regulations, excluding banks and financial institutions, must include in their articles of association or partnership agreement (as applicable) provisions requiring:
3. That their shares or units be fully and continuously owned by natural persons, banks, financial institutions, or companies. The articles of association for these companies or partnership agreements must contain provisions requiring that their shares be fully and continuously owned by natural persons, banks, or financial institutions.
4. Registration with the provisions mentioned in items (2) and (3) of this "First" paragraph.
5. To provide the Central Bank of Lebanon and the Banking Control Commission with all required or requested information regarding their balance sheets, shareholders, and unit holders who directly or indirectly own five percent (5%) or more of the bank's total ordinary shares, including beneficial owners.
6. Obtaining prior approval from the Central Council for each:

• a. An amendment to be introduced into the articles of association or partnership agreement regarding the provisions imposed by this "First" paragraph.
• b. Subscription and trading of their shares or units, specifically:
• a. If it results in the subscriber or transferee, or any beneficial owner, directly or indirectly acquiring more than five percent (5%) of the bank's ordinary shares.
• b. If the subscriber or transferee, or any beneficial owner, directly or indirectly owns five percent (5%) or more of the bank's ordinary shares at the time of transfer.
• c. If the transferor or transferee, or any beneficial owner, is a current or elected board member, director, or authorized partner in the company, or fund manager, regardless of the number of shares/units transferred.

1. Amended by Article 1 of Interim Decision No. 10641 dated 29/1/2011 (Interim Circular No. 244).

542 Specifically, the participation/share of a spouse and minor children, and any economic group according to the definition in regulations issued by the Central Bank of Lebanon, are included within the percentages specified in items (a) and (b) above. A transfer of shares/units through inheritance or bequest is not considered a transfer under the meaning of this Article. Subscription by shareholders within the framework of exercising their right of first refusal in any capital increase, whether reducible or non-reducible, is exempt from the prior approval of the Central Council mentioned in item (3) of this "First" paragraph. Second: Lebanese holding companies subscribing or transferring shares mentioned in "Article 5" of these Regulations are exempt from applying the provisions of item (1) of this "First" paragraph, provided that their articles of association contain provisions requiring:

1. That their business be limited to owning shares in banks and financial institutions, participating in their management, conducting deposit operations with them, providing guarantees to third parties on their behalf, and lending to them according to legal or regulatory permissions, without other operations.
2. That the aforementioned Lebanese holding companies and their shareholders do not borrow from banks or financial institutions in which they directly or indirectly participate, nor obtain guarantees (real or personal) or waivers of rights/assets from them regardless of nature.
3. Their supervision by the Central Bank of Lebanon and the Banking Control Commission.
4. That all their shares, as well as the shares or units of companies and investment funds participating in their capital, remain named.
5. Amended by Article 2 of Interim Decision No. 10641 dated 29/1/2011 (Interim Circular No. 244).

543 5. Obtaining prior approval from the Central Council of the Central Bank of Lebanon for each:

• a. Amendment to their articles of association.
• b. Subscription and trading of their shares or the shares/units of companies and investment funds participating in their capital, specifically in the cases specified in "First" above and according to item (3) of this paragraph.

6. Their compliance with the obligations imposed in item (2) of this "First" paragraph.
7. Their compliance with banking secrecy laws, particularly regarding information about the status and clients of banks and financial institutions operating in Lebanon that participate in their capital. Any decision or action taken by the concerned holding companies contrary to the provisions of this "Second" paragraph, or any status that contradicts these provisions, is considered void and unenforceable. Third: Investment funds and companies participating in the capital of Lebanese holding companies mentioned in this "Second" paragraph, excluding banks and financial institutions, must include in their articles of association or partnership agreements (as applicable) the obligations imposed by items (2), (4), and paragraph (b) of item (5) of this "Second" paragraph. Fourth: Investment funds and companies participating in the capital of banks, excluding banks and financial institutions, must comply with the provisions of this Article when elected as board members or upon any change or action resulting in them owning five percent (5%) or more of the bank's total ordinary shares or voting rights attached thereto. The participation/share of any economic group according to the definition in regulations issued by the Central Bank of Lebanon is included within the aforementioned 5% ratio.
8. Added by Article 4 of Interim Decision No. 10641 dated 29/1/2011 (Interim Circular No. 244).

544 Fifth: All Lebanese companies, including Lebanese holding companies subscribing or transferring shares mentioned in "Article 5" of these Regulations, must have sufficient capital or own funds to cover the value of shares intended for ownership. Sixth: In case foreign companies and investment funds cannot comply with the provisions of this Article, the matter is referred to the Central Council for an appropriate decision. Article 6: The request to obtain prior approval from the Central Council of the Central Bank of Lebanon for listing a Lebanese bank's shares in organized financial markets, and for the proportion of shares actually offered for trading in these markets (which must not be less than one-third of the bank's total shares), is submitted to the Governor's Secretariat in four copies, two originals, accompanied by:

• 1. A copy of the attendance sheet and minutes of the Extraordinary General Meeting that took this decision, specifying details, including, if applicable, the trading system applied to unlisted shares in organized financial markets if not stipulated in the concerned bank's articles of association.
• 2. Any other documents requested by the Central Bank of Lebanon.

Article 7: Banks licensed to list all their shares in organized financial markets and actually offer a specific proportion for trading in these markets must:

• a. Ensure their articles of association explicitly state that no regulatory restrictions exist on trading their shares in organized financial markets.
• b. Distribute the aforementioned proportion among all bank shareholders, or among all shareholders of the category to be offered for trading in financial markets if restricted to either ordinary or preferred share categories, according to each shareholder's proportion.

3. Amended by Article 1 of Interim Decision No. 8495 dated 20/9/2003 (Interim Circular No. 36).

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• c. If this proportion results from a capital increase, the increased shares must be offered for subscription to all bank shareholders, or to those waiving their subscription rights, or to subscribers and non-subscribers according to the allocation decided by the Extraordinary General Meeting.
• d. Obtain prior approval from the Central Bank of Lebanon if the seller or buyer of shares traded in organized financial markets is a user operating an account with it, specifically in the following cases:
• If the user is from the "Senior Executive Management" according to the definition in regulations issued by the Central Bank of Lebanon.
• If the transfer results in the user acquiring more than 1% of the bank's total shares.
• If the transferring or transferee user owns 1% or more of the bank's total shares at the time of transfer. The aforementioned rules apply if the transferring or transferee user is a spouse, ascendant, or descendant of the persons specified in this item.
• e. Disclose immediately to the supervisory authority of the organized financial market where their shares are traded, the essence of the approval and details of operations under item (d) above.

1. Amended by Article 1 of Interim Decision No. 10641 dated 29/1/2011 (Interim Circular No. 244).

Article 8: A bank wishing to purchase a portion of its shares actively traded in organized financial markets must observe the following rules and standards:

• a. Submit an application for prior approval from the Central Bank of Lebanon. This approval is granted for a maximum period of one year, renewable.
• b. In addition to what is stipulated in item (3) of Article 5 of Law No. 308 dated 3/4/2001, the concerned bank, at the time of submitting the request, must have shown actual profits in its net aggregate results over the last three financial years, or for the period since incorporation if less than three years old.
• c. Provide the supervisory authority of the organized financial market where its shares are traded with a copy of the granted approval upon receipt, and publish the essence and duration of this approval by any media means.

1. Amended by Article 1 of Interim Decision No. 9454 dated 9/11/2006 (Interim Circular No. 124).

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• d. Conduct operations subject to prior approval through the financial market where its shares are traded, solely for the purpose of contributing to stabilizing their share price and preventing sharp fluctuations.
• e. Publish quarterly financial statements organized according to international standards as specified by the Banking Control Commission.
• w. Notify the Central Bank of Lebanon and the Banking Control Commission:
• At the end of each month, details of all purchase and sale operations (operation dates - number of shares - prices - organized markets where they occurred).
• Immediately, if its acquisition of these shares and related depositary receipts exceeds 10% (ten percent) of its total shares, whether traded or untraded in organized financial markets.

2. Amended by Article 1 of Interim Decision No. 9523 dated 6/2/2007 (Interim Circular No. 129).

• z. Comply with international financial reporting standards, particularly Standard No. 32 (especially paragraph 33 thereof), which prohibits recording any profits or losses resulting from share purchase, sale, issuance, or cancellation in the Income Statement, but rather includes them in the Retained Earnings Reserve account calculated as part of own funds.

3. Amended by Article 2 of Interim Decision No. 9523 dated 6/2/2007 (Interim Circular No. 129).
4. Amended by Article 3 of Interim Decision No. 9523 dated 6/2/2007 (Interim Circular No. 129).

Article 9: 1. Medclear S.A.L. must:

• a. Register share transfers, whether listed or unlisted in organized financial markets.
• b. Notify the Governor of the Central Bank of Lebanon immediately regarding share transfers conducted contrary to the provisions of item (1) of Article 4 of Law No. 308 dated 3/4/2001 and Articles Nos. 8 and 5 of these Regulations.
• 2. The Governor of the Central Bank of Lebanon may freeze trading in the shares mentioned in paragraph (b) of item (1) of this Article and exercise their attached voting rights, by a decision notified from Medclear S.A.L., requesting it to:
• a. Sell unlisted shares in organized financial markets via public auction on behalf of the transferee and at his responsibility.
• b. Offer listed shares in organized financial markets for immediate sale in a single batch at market price, and if they cannot be sold entirely in one batch, repeatedly offer the remaining shares for sale on behalf of the transferee and at his responsibility.

Article 10: The Legal Affairs Directorate of the Central Bank of Lebanon shall provide Medclear S.A.L. with a register of subscribers for any capital increase in any Lebanese bank, immediately upon completion of such increase.

Section Two: Preferred Shares Article 11 - 1: The request to obtain prior approval from the Central Council of the Central Bank of Lebanon for establishing preferred shares by the concerned bank is submitted to the Governor's Secretariat in four copies, two originals, accompanied by a copy of the attendance sheet and minutes of the Extraordinary General Meeting of shareholders that decided on establishing this share category, along with any other required documents.